Is it smart to go into debt to pay for college?

Whenever you see the word "loan" that means you are going to have to pay the  money back.  With interest.  While most students will have to take out some loans (there are more than $100 billion in federal education loans and $10 billion in private student loans made each year), you need to make sure you don't take out too many loans and you don't take out loans with a high interest rate.  Keep in mind, you will have to start paying back your students loans 6-9 months from when you finish school. 

What can you do to keep your future payments reasonable? Don’t borrow more than you need!  So how much debt is OK to take out? At the very least, do not borrow more than what you can expect to make your first year out of school. 

There are three different kinds of loans and you should be aware of the pros and cons of each before you decide to take one out.

  • STUDENT LOANS:  The federal government administers two kinds of student loans, the Perkins Loan and the Stafford Loan.  The Perkins Loan is a low-interest loan for students with exceptional  financial need.  You can borrow up to $5,500 a year for each year of undergradate study. The Stafford Loan is a low interest loan (6.8% interest rate) for students with financial need.  The amount of money you can borrow with a Stafford loan depends on your financial need, but generally increases by at least $1,000 for each year you are in school (so stick with it!). The loans are administered through your school's financial aid office (they will receive the check, etc.)   For both loans, though, the first step to access the loan is to complete a FAFSA.     Visit the U.S. Department of Education site to learn more about these loans.
  • PARENT LOANS:  Your parents can also apply for a loan to help you pay for college. These are called PLUS loans. The interest rate for a PLUS loan is 7.9%  The PLUS loan lets parents borrow money to cover any costs not already covered by your financial aid package, up to the full cost of attendance. There is no limit.  Your school's financial aid office will have information on how your parents can apply for a PLUS loan.  Visit the U.S. Department of Education site to learn more about these loans.
  • PRIVATE STUDENT LOANS:   Private student loans are made by a private bank.  You do not have to fill out a FAFSA to access private student loans.  These loans tend to cost more than the Stafford, Perkins or PLUS loans that are made available through the federal government.  Since federal education loans are less expensive than and offer better terms than private student loans, you should exhaust your eligibility for federal student loans before resorting to private student loans.  If you find that you need to take out a private student loan, shop around from bank to bank and make sure that you get a loan with the best deal (low interest rate, reasonable repayment rates, etc.).


For more detailed analysis and data on each of these loan options visit